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Is SOHU pulling a YHOO?

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question_3 February 6, 2012 (Chinavestor) The earnings season has started out with a huge disappointment for Chinese stocks. China's fourth largest web portal Sohu.com Inc. (NASDAQ:SOHU) reported net income of $26.857 million or $.65/share for the fourth quarter, a 45.5% drop from the previous quarter. Investors wonder what's happening at a time when revenues rose to $246.183 million, representing an increase of 6% from previous quarter or 42% YoY. And that this quarter wasn't just a fluke, Sohu.com Inc., (NASDAQ:SOHU) announced EPS estimates of $.55 a share, well short of previous estimates of $1.13 a share. It's not just bottom line that is troubling investors. The company predicts 2012 first quarter revenues somewhere between $219 million and $225 million, well short of $238.2 million analysts were expecting. Is Sohu pulling a Yahoo! (NASDAQ:YHOO)? Some may wonder if China's online portal have reached its potential and net income growth is limited from here. To illustrate the point, take a look at the following charts depicting revenue and net income growth for Sohu.com (NASDAQ:SOHU) next to Yahoo.com Inc. (NASDAQ:YHOO).

Sohu.com Inc. (SOHU) [$ million] Yahoo! Inc. (NASDAQ:YHOO) [$ million]
SOHU_2011Q4_revearnings YHOO_2011Q4_rev

Well, the picture reveals that Sohu.com Inc. (NASDAQ:SOHU) has top line growth potential left. Considering that China's internet population reached 517 million by the end of the year and represent less than 50% saturation, there is room for growth. But Sohu.com Inc. (NASDAQ:SOHU) will have to find smarter ways to invest than it did in the past. The company just announced a goodwill impairment loss of $27.5 million and is investing heavily in the online video business. Considering that both key players in the arena, Youku.com Inc. (NYSE:YOKU) and Tudou Hold. (NASDAQ:TUDO), are in the red, it doesn't take to be a genius to see how much profits Sohu.com Inc. (NASDAQ:SOHU) generated from there.

Considering the $733 million cash at hand and the long history of the company, it is not going to go anywhere. But investors have to be careful and touch the stock only when revenue and net income growth return.



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